ESCAP Survey 2013 presentation in Brasilia, 18 April
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Launch of the Economic and Social Survey of Asia and the Pacific 2013 presented at the "Seminar Asia and Brazil: Perspectives for Inclusive Growth" held in Brasilia on April 18th and organised by UNDP's International Policy Centre for Inclusive Growth and the Brazilian Institute for Applied Economic Research (Ipea).
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ESCAP Survey 2013 presentation in Brasilia, 18 April
- 1. ECONOMIC AND SOCIAL SURVEY OF ASIA AND THE PACIFIC 2013 Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development
- 2. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Survey launch in 37 locations 28 Locations in Asia-Pacific New York, Geneva , 3 Regional Commissions, Rome Helsinki, Paris, and Brasilia 2
- 3. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development A win-win development agenda for the region • Asia-Pacific growth to remain subdued in 2013; challenged by uncertainty in the euro zone & US + structural impediments • Survey offers a blueprint for economic, social and environmental resilience • ‘‘Grow first, distribute & clean up later’’ no longer viable and acceptable • Investing in people and planet is also good economics • Affordable, doable and economically sustainable • Forward-looking macroeconomic policies for inclusive and sustainable development 3
- 4. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development 2013: Subdued regional growth • Growth is forecast to increase to 6% in GDP growth 10 2013 from 5.6% in 2012 8 Percentage – China to grow at 8%, up from 7.8% in 2012 6 – India to grow at 6.4%, up from 5% in 2012 4 2 • Inflation likely to remain at 5.1% in 2013 0 – Risk of oil and food price increase 2009 2010 2011 2012 2013 Developing Asia-Pacific Asia-Pacific • Lower growth could be “new normal” as Asia-Pacific region shows signs of strain from Africa developed world uncertainty; estimated Latin America and the output loss of $1.3 trillion by end-2017 Caribbean 2013 Arab – Pre-crisis (2000-2007 ): 8% 2012 – Projected growth (2013-2017): 6.5% Europe 0 2 4 6 8 Percentage 4
- 5. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Outlook: Regional and country groups Subregions LDCs, LLDCs and SIDSs GDP growth GDP growth East / North-East LDCs South-East South / South-West 2013 LLDCs 2012 2013 North / Central 2012 Pacific SIDSs 0 2 4 6 8 10 12 0 2 4 6 8 10 12 Percentage Percentage Inflation Inflation South / South-West LDCs North / Central Pacific LLDCs 2013 2013 South-East 2012 SIDSs 2012 East / North-East 0 2 4 6 8 10 12 0 2 4 6 8 10 12 Percentage Percentage 5
- 6. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Outlook: Selected countries Real GDP growth Inflation (Percentage) 2011 2012 2013 2011 2012 2013 Bangladesh 6.7 6.3 6.0 8.8 10.6 7.5 China 9.2 7.8 8.0 5.4 2.7 4.0 Fiji 1.9 2.5 2.7 7.7 3.5 3.0 India 6.2 5.0 6.4 8.4 10.0 7.0 Indonesia 6.5 6.2 6.6 5.4 4.3 5.0 Kazakhstan 7.5 5.0 6.0 8.3 5.1 6.5 Malaysia 5.1 5.6 5.0 3.2 1.7 2.5 Myanmar 5.5 6.3 6.3 4.2 1.5 6.5 Pakistan 3.0 3.7 3.5 13.7 11.0 8.5 Papua New Guinea 11.1 9.2 4.0 8.5 4.1 8.0 Republic of Korea 3.6 2.0 2.3 4.0 2.2 2.5 Russian Federation 4.3 3.4 3.6 8.4 5.1 6.4 Thailand 0.1 6.4 5.3 3.8 3.0 3.1 Turkey 8.6 3.2 3.8 6.5 8.9 7.6 Developing ESCAP 7.0 5.6 6.0 6.4 5.0 5.1 6
- 7. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Policy challenge 1: Uncertain global environment • Fiscal crisis in the euro zone + Policy uncertainty 50 Export growth Percentage (year-on-year) in US 40 World Asia-Pacific 30 Impact on Asia-Pacific 20 • Decreased economic activity through the 10 trade and finance channel 0 • Estimated regional GDP loss of 3% since the -10 onset of the global crisis five years ago - $870 2010Q1 2010Q2 2010Q4 2011Q1 2011Q2 2011Q4 2012Q1 2012Q2 2010Q3 2011Q3 2012Q3 billion • Loose monetary policies, quantitative easing Vulnerability Yardstick (QE), of the developed world including in US China Least Russian Federation Impact on Asia-Pacific Kazakhstan vulnerable • Short-term capital flows volatility Thailand • Rapid short-term currency appreciation Philippines India • Food and fuel price volatility Indonesia Most Impact on Asia-Pacific Malaysia vulnerable • Poverty and inflation Republic of Korea 0 100 200 300 7
- 8. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Policy challenge 2: Regional slowdown • China growth slowdown affects the region – China is currently the largest individual export market for the rest of the region – About 50% of imports of intermediate goods to China are sourced from developing Asia- Pacific economies and Japan • China export growth decelerated significantly – After mid-2012, 10.5% in the second quarter to 4.5% in the subsequent quarter • India growth and exports still subdued China: Monthly import growth 150 Imports: Ordinary Trade 100 50 Imports: Processing 0 and Assembling -50 Imports: Equipment -100 Imported for Processing Apr-10 Apr-11 Apr-12 Jul-11 Oct-11 Jan-12 Oct-12 Jan-10 Jul-10 Oct-10 Jan-11 Jul-12 and Assembling 8
- 9. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Policy challenge 3: Economic insecurity Informal sector (%) • Decreased job growth, increased Nepal India 86 84 economic insecurity and vulnerabilities Pakistan Indonesia 73 78 – High incidence of informal sector jobs Philippines Viet Nam 70 68 – Nearly 1.1 billion of the region’s workforce Sri Lanka Thailand 42 62 remain trapped in low quality, more pervasive China 33 among women and youth than men 0 20 40 60 80 100 Percentage • Youth employment information Youth Unemployment (%) – Youth unemployment is forecast to edge Indonesia Sri Lanka 18 19 slightly upwards in 2013 New Zealand Hong Kong, China 15 17 Philippines 15 – 13.4% in South-East Asia and the Pacific, Taiwan province of China Australia 12 13 Pakistan 11 10% in South Asia and 9.8% in East Asia Marshall Islands 11 India 10 Republic of Korea 9 • Low social security Japan Macao, China Singapore 5 7 7 Viet Nam 5 – Less than 2% of GDP in many countries Thailand 3 0 5 10 15 20 Percentage 9
- 10. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Structural impediments 1: Growing inequality • Income inequality (Gini index) increased Inequality-adjusted GDP per capita Inequality-adjusted social development index from 33.5 in the 1990s to 37.5 in the latest Singapore Korea Rep available year Korea Rep Russian Georgia Armenia Fed • Inequality-adjusted ‘real’ GDP per capita Malaysia Kazakhstan Russian T urkey falls Kazakhstan Fed Sri Lanka Sri Lanka: GDP per capita $4,555 to ‘real’ GDP Iran Is Rep Mongolia per capita $2,323 (in 2005 PPP) Azerbaijan Uzbekistan T hailand Kyrgyzstan Republic of Korea: GDP per capita $27,415 to Maldives Azerbaijan ‘real’ GDP per capita $19,492. Armenia Tajikistan Sri Lanka Philippines • Inequality reduces social development gains Georgia China by over 20% Fiji Thailand Bhutan Maldives Pakistan: Gains reduced by over 30% T urkey China GDP per capita SDI Russian Federation: Gains reduced by over Mongolia Gini-adj Indonesia Gini-adj 10% Philippines Viet Nam 0 20000 40000 60000 0.0 0.5 1.0 10
- 11. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Structural impediments 2: Inadequate tax revenue + progressivity Tax (% of GDP) • Many economies in the region have failed to China Thailand raise sufficient tax revenue despite rapid Korea Rep Indonesia growth Pakistan 2011 Bangladesh 2000 • Region has lowest tax burden of any India developing region in the world 0 5 10 15 20 Percentage • The low tax revenue restricts governments’ Government tax and inequality fiscal space 80 – Negative relationship between the tax burden of 60 Gini coefficient countries in the region and their levels of 40 inequality 20 0 0 20 40 General government taxes/GDP 11
- 12. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Structural impediments 3: Infrastructure deficit Population without electricity access Papua New Guinea • Impediment to growth, especially in South Asia Myanmar Solomon Island and the Pacific islands Afghanistan Vanuatu – LDCs of the region, such as Afghanistan, Cambodia Timor-Leste Cambodia and Myanmar have the largest infrastructure deficits Korea, Dem Rep – Power is the most critical bottleneck and then Bangladesh Nepal transportation Lao PDR Pakistan Indonesia • Economic cost of traffic congestion: Mongolia Bhutan Indonesia: 1.2% of GDP India Sri Lanka Thailand: 2.1% of GDP Fiji Philippines Republic of Korea: 2.6% of GDP Samoa Viet Nam • Financing requirement in the region Iran, Islamic Rep Thailand – $600 billion to $800 billion per year Malaysia China Brunei Darussalam Maldives Korea, Rep 0 20 40 60 80 100 12
- 13. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Structural impediments 4: Unsustainable resource use Domestic material consumption intensity • Asia-Pacific economy is requiring more South / South-West North / Central resources to produce one dollar of GDP South-East as the economy grows Asia-Pacific East / North-East 2008 • For example, domestic material consumption Pacific 1992 intensity and water intensity are very high World • Future growth of resource use in several 0 2 4 6 Tonnes per US dollar 8 10 countries holds significant implications for Water intensity overall resource demand South / South West North / Central • Vulnerability to natural disasters South-East Asia-Pacific – 42% of the global economic losses due to East / North East natural disasters Pacific – Disaster losses since 1980 have increased by World 16 times in Asia while GDP per capita has 0.0 0.2 0.4 0.6 0.8 1.0 1.2 grown by only 13 times Cubic metres per US dollar 13
- 14. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Conventional macro policies • Over-emphasis on stabilization role (debt and price stability) • Neglected developmental role • Impact on Asia-Pacific: – Significant infrastructure shortages – Decline in public investment in agriculture from 14.8% to 7.4% of GDP – Low public social security expenditure, total social security expenditure is 6.9% of GDP Inflation and growth Public social security benefit expenditure, excl. heal care (% of GDP) China India Korea Rep Viet Nam Fiji Debt and macro instability Thailand Pakistan Indonesia Bangladesh 0 1 2 3 4 5 Percentage 14
- 15. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Developmental macro policies Social expenditures and inequality • Greater emphasis on the quality and 70 composition of public expenditure 65 – Rather than on aggregate budget deficits, 60 public debts and targeting inflation at a very 55 low level Gini coefficient 50 45 • Higher investment in health, education 40 and social security 35 30 • Higher public investment in environment 25 • Inclusive finance 20 15 25 35 45 55 65 75 – SMEs and agriculture development General government social expenditures over total government outlays (per cent) 15
- 16. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Win-win policies Impact of China rebalancing: Export growth • China’s economic rebalancing to make New Zealand Singapore growth more inclusive; good for region and Viet Nam Philippines Japan beyond Republic of Afghanistan Russian – Increase exports to China by other Asia-Pacific Kazakhstan Armenia Cambodia countries by $13 billion during 2013-2015 Fiji India Indonesia Nepal • Minimum wage policy also good for Iran, Islamic Pakistan T hailand employers and the economy T urkey – Thailand’s minimum wage adjustment to boost job 0.0 0.1 0.2 0.3 0.4 0.5 0.6 Percentage point growth by 0.6% and GDP growth by 0.7% by 2015 Estimated impact of minimum wage hikes in Thailand 2 • National rural jobs scheme in India – 48 million households provided employment in over 1 percentage point 600 districts in 2012-13 0 • Inclusive finance in Bangladesh 2011 2012 2013 2014 2015 2016 2017 – 10 million new bank accounts for smallholder -1 GDP growth Employment growth farmers -2 16
- 17. Proposed policy package • A job guarantee programme – 100 days per year for participants • A universal, non-contributory pension – For all aged 65 or older • Benefits to all persons with disabilities – Ages of 15 and 65 Forward-looking Macroeconomic Policies for • Increasing the share of public health expenditures Inclusive and Sustainable – 5% of GDP by 2030 Development • Universal enrolment in primary and secondary education – Primary by 2020 and Secondary by 2030 • Energy access to all – Modern energy services by 2030 Illustrative package of policies to promote inclusive and sustainable development in 10 Asia-Pacific countries 17
- 18. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Investing in inclusive and sustainable development • Overall public expenditure and investment requirements to implement such a policy package vary across countries • Total investment needs of above package of policies 5% to 8% of GDP by 2030 • Public investment needed to deliver policies to sustain growth and promote inclusive and sustainable development – In the case of China, the cost of the package is projected to reach 3.3% of GDP in 2020 and 5.2% of GDP by 2030 – The cost of the package is projected to exceed 10% of GDP by 2030 only in Fiji (13%) and Bangladesh (22%) 18
- 19. Doable and economically sustainable • Most countries can self-finance – broadening tax bases – tax regimes more progressive – tax administration more efficient – tighter regulations on capital flights Forward-looking – fighting corruption Macroeconomic Policies for Inclusive and Sustainable – reducing non-development expenditures Development • LDCs would need global partnership and development cooperation • Will not jeopardize macroeconomic stability 19
- 20. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Maintaining long-term macro stability China: Public debt (% GDP) • The good news is that public expenditure on these policies package does not lead to macroeconomic destabilization • Direct impact of additional public spending on GDP growth China: Inflation (%) • Indirect impacts on labour force participation, wage earnings and labour productivity would lead to sustainable future debt paths in the region 20
- 21. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Forward-looking macroeconomic policies • Rio+20+ 2010 MDGs Summit recognized forward-looking macroeconomic policies should include: • Safeguard the sustainability of public investment strategies • Not focus narrowly on debt stabilization and curbing inflation • Often necessary to relax unnecessarily stringent fiscal and monetary restrictions • Use countercyclical fiscal and monetary policies • Strengthen mobilization of domestic resources • Enhanced international cooperation to strengthen tax revenue collection Objective: • Supportive of growth of real output and employment. • Minimize the impact of external and other shocks on poverty • Buttress the fiscal capacities of all Governments 21
- 22. Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development Need for macroeconomic course correction New development paradigm • Grow now, distribute + clean up later is dead end • Investing in social and environment pillars fortifies economic pillar… – Leads to sustained, inclusive and equitable economic growth • Leaders in the Asia-Pacific should pledged to adopt forward-looking macroeconomic policies to promote inclusive and sustainable development 22
- 23. Thank you Economic and Social Survey of Asia and the Pacific 2013 is downloadable on: www.unescap.org/Survey2013/ email: escap-mpdd@un.org 23
Notas del editor
- Excellencies, friends from the media, distinguished guests, ladies and gentlemen, It is my great pleasure to join you in [CITY] today for the launch of the ESCAP 2013 Economic and Social Survey of Asia and the Pacific. Since 1947, the Survey has monitored regional progress, providing the latest data, cutting-edge analyses, and innovative policy suggestions on current and emerging socioeconomic issues and challenges, to support inclusive and sustainable development in the region. The 2013 Survey presents the outlook and prospects for our region, which, as we highlighted last year, is still facing the “new normal” of lower growth – showing signs of strain as uncertainty and crisis deepen in the United States and the euro zone. The Survey also outlines a policy agenda for addressing these challenges and sustaining economic dynamism, while ensuring that growth is inclusive and environmentally responsible. It reminds us that this is no time for complacency, and that we need for a more inclusive and sustainable pattern of economic and social development.
- The annual Survey is the ESCAP flagship publication, and is being launched today in 37 places around the world including Addis Ababa, Beirut, Brasilia, Helsinki, Geneva, New York, Paris, Rome and Santiago, as well as 28 Asia-Pacific locations. We are very pleased that a number of influential leaders and policy-makers are participating in these world-wide launches – including Ministers of Finance, Governors of Central Banks, and eminent economists. Since you all have copies of the Survey already, my aim this morning is to highlight a few key forecasts and to emphasize some of the major development challenges, opportunities and policy priorities, before opening the floor for any specific questions. According to the Survey 2013, a policy shift towards more inclusive and sustainable development , is going to benefit the entire region.
- The theme of the 2013 edition of the Survey is Forward-looking Macroeconomic Policies for Inclusive and Sustainable Development The following messages emerge: Asia-Pacific growth remains subdued and is showing signs of strain amid persisting uncertainty in developed nations. Taking up the call by world leaders at the United Nations Conference on Sustainable Development, Rio+20, to put people at the centre of efforts to build a world of inclusive and sustainable economic prosperity, the 2013 Survey offers a blueprint for strengthening social and environmental resilience to fortify economic resilience. The Survey comes at a critical juncture for Asia and the Pacific, as the continuing impact of the Great Recession of 2008-2009 exposes the weaknesses of the development paradigm that has seen rapid economic growth marked by rising inequalities and severe depletion of natural resources. “ Grow first, distribute and clean up later ” is no longer a viable or acceptable model . In a first this year, the Survey estimates the investment needed for inclusive and sustainable development. The results are highly encouraging, showing that this is not only affordable for most nations, but does not carry any significant risk of macroeconomic destabilization.
- We are forecasting a modest increase in growth in developing Asia-Pacific economies to 6.0% this year from 5.6% in 2012, although growth is showing signs of strain linked to the uncertainty in the euro zone and the United States. Inflation in these countries is expected to increase marginally by an average of 0.1% from last year to 5.1% . An important finding is that the relatively subdued growth compared to the pre-global financial crisis period, could become the “new normal” for many regional economies if present economic trends were to continue and structural impediments are not addressed. This could mean an estimated output loss of $1.3 trillion by end-2017. However, the region remains the most dynamic and continues to anchor the global economy as it ‘s evident from a comparative analysis with other regions on the basis of economic growth.
- Let me now highlight growth and inflation forecasts of subregions and countries with special needs. EAST AND NORTH-EAST ASIA: Outlook generally positive NORTH AND CENTRAL ASIA: Projected to remain more-or-less the same PACIFIC : Deceleration in growth is expected to continue SOUTH AND SOUTH-WEST ASIA: A moderate pick up in growth is expected and inflation is remaining stubbornly high SOUTH-EAST ASIA : Near term economic outlook is favorable LDCs: Growth remains in line with the other developing countries in the region, but inflationary pressure remain elevated. LLDCs: Growth is lower than the LDCs and overall fall in the prices SIDS: Growth decelerates steadily since 2011 and inflationary pressure picks up.
- I will now highlight growth projections from the Survey of some selected countries. Growth in China is expected to moderate to a more sustainable pace of 8% in 2013, as government priority shifts towards higher-quality economic expansion in terms of devoting more resources to social sector development (e.g. education, health and social protection). As a result, inflationary pressures are also likely to remain stable. Although growth is anticipated to be subdued for the region as a whole, growth should increase in India, Indonesia, Turkey, while Thailand could experience some moderation along with Malaysia. Softer external demand, and monetary policy easing, and commodity prices vulnerability could put some further pressures on prices in some countries. These include countries with typically high consumer inflation like India, Bangladesh, Pakistan, Papua New Guinea, the Russian Federation, and Turkey.
- I will now highlight key policy challenges flagged by the 2013 Survey. The main risk facing Asia-Pacific economies with their dominant reliance on developed export markets is the persisting economic policy uncertainty in the euro zone and the United States which is estimated by ESCAP to have reduced Asia-Pacific GDP by 3% since the onset of the global crisis five years ago. This translates into a regional output loss of $870 billion Asia-Pacific export growth has declined sharply since the last quarter of 2011, sliding into negative territory in the third quarter of 2012. Monetary injections by central banks in developed nations have turned Asia-Pacific capital markets volatile, affecting growth, which is reflected also in the ESCAP Vulnerability yardstick (sum of short-term external debt, latest quarterly imports based on four-quarter moving average and estimated international portfolio investment position over foreign exchange reserves excluding gold times 100). Food security is also very low: an estimated 563 million people are undernourished , and a large number of people are vulnerable to global food price volatility which have a direct impact on inflation and poor.
- Emerging economies in the region are finding it difficult to sustain earlier levels of economic dynamism which could adversely impact the region’s ability to promote inclusive development by slowing job creation and increasing economic vulnerability. The Survey shows that China growth s lowdown affects the region because China is currently the largest individual export market for the rest of the region, as well as about 50% of imports of intermediate goods to China are sourced from developing Asia-Pacific economies and Japan On the other hand, China e xport growth has decelerated significantly over the past couple of years, especially after mid-2012, 10.5% in the second quarter to 4.5% in the subsequent quarter The story is also similar in the case of India, where growth and exports are still subdued.
- Nevertheless, the Survey warns against complacency and points to major development challenges and impediments to growth. Emerging economies in the region are finding it difficult to sustain earlier levels of economic dynamism which could adversely impact the region’s ability to promote inclusive development by slowing job creation and increasing economic insecurity. Asia-Pacific growth continues to leave behind hundreds of millions of people. Nearly 800 million still live on less than $1.25 a day, and about an equal number are vulnerable to extreme poverty; over half a billion are underfed and an estimated 1.1 billion workers are in vulnerable employment. The vulnerability of the poor is also heightened by frequent and severe natural disasters. The situation is particularly worrisome for youth employment. The Survey notes that y outh unemployment is forecast to edge slightly upwards in 2013 with 13.4% in South-East Asia and the Pacific, 10% in South Asia and 9.8% in East Asia. Similarly, the social security benefits remain less than 2% of GDP in many countries in the region.
- We now come to the Survey’s analysis of the structural barriers to reinvigorating economic growth in the region and making it inclusive and sustainable. A major issue is growing inequality. While rapid economic growth since the 1990s enabled Asia and the Pacific to achieve MDG 1 – halving poverty levels – ahead of the 2015 deadline, growth has also seen rising income inequalities. The population-weighted average Gini coefficient for the entire region increased from 33.3 in the 1990s to 37.5 according to latest data. Only 16 out of 30 countries in the region with positive mean annual growth showed lower income inequality. Regional inequalities have widened, with over 3 billion people affected in just 8 countries. Inequality has increased in East and North-East Asia, North and Central Asia, and Southeast Asia. ESCAP also computed the Inequality-adjusted GDP per capita to show the difference in current and ‘real’ GDP per capita. The results show that ‘real’ GDP per capita falls in most of the countries. For example, Sri Lanka: GDP per capita $4,555 to ‘ real’ GDP per capita $2,323 (in 2005 PPP), Republic of Korea: GDP per capita $27,415 to ‘ real’ GDP per capita $19,492. Moreover, inequality reduces social development gains, measured by Social development Index (composed of education and health indicators of the Human Development Index) by over 20% in may countries, such as Pakistan and Russian federation. Inequality not only reduces the poverty-reducing impact of economic growth, it also deprives hundreds of millions access to the means to develop their economic productive potential by denying them adequate health care, education, energy, credit, land, etc.
- An important message of the 2013 Survey is the need to reform tax regimes to generate adequate revenues for public investment on basic social services. The Survey indicates that many countries in the region have failed to raise sufficient tax revenue despite rapid economic growth. Also, the region has lowest tax burden of any developing region. The low tax revenue therefore restricts governments fiscal space. The countries with higher tax revenue indicates that decline in their levels of inequality.
- The Survey argues that the generalized slowdown across the region has been compounded by long-term structural issues, such as infrastructure shortages, which inhibits economic growth. Many emerging countries are increasingly facing the largest infrastructure deficits. On the other hand, LDCs and SIDS have struggled to integrate into global and regional value chains, mainly due to poor infrastructure and high trading costs In the context, some estimates of economic cost of traffic congestion are quite significant. For example, Indonesia: 1.2% of GDP, Thailand: 2.1% of GDP, and Republic of Korea: 2.6% of GDP. One of the key shortfalls currently for many such economies is the enormous infrastructure gaps that exist between the requirements and actual investment. ESCAP and others have estimated that the region requires on an average about $600 billion to $800 billion per year for addressing the yawning infrastructure gap.
- Another major challenge is making growth more sustainable. Trends in the use of biomass, energy, construction and other minerals show that while other regions are becoming less resource-intensive in their growth, the Asia-Pacific region is using more resources to produce one dollar of GDP. This is causing a rapid depletion of natural resources and increasing the region’s vulnerability to natural disasters, adverse climate change impacts and commodity price volatility. The Survey highlights the need for supply-side policies aimed at reducing the carbon intensity of growth in order to minimize the adverse impacts of economic activity on natural resources and commodity prices. For example, vulnerability to natural disasters impacts: 42% of the global economic losses due to natural disasters Disaster losses since 1980 have increased by 16 times in Asia while GDP per capita has grown by only 13 times
- The Survey provides narratives that there is a need for paradigm shift in macroeconomic policy making to focus on developmental role overshadowed by emphasis on fiscal stabilization and battling inflation. The correlation between inflation and growth for inflation rates of up to about 20% is zero or a mildly positive. Similar is the case for the relationship between public debt and macroeconomic instability. In fact, there is no optimum debt-GDP ratio. A debt-to-GDP ratio of 60% is quite often noted as a prudential limit for developed countries, which suggests that crossing this limit will threaten fiscal sustainability. For developing and emerging economies, 40% is the suggested debt-to-GDP ratio that should not be breached on a long-term basis. In many countries, conventional macro policies failed to tackle the problems of falling demand and long-term structural impediments in areas such as infrastructure deficits, decline in public investment in agriculture and low level of public social security expenditure in the region .
- The central message of the 2013 Survey is to remind Asia-Pacific economic policymakers to adopt forward-looking macroeconomic policies to promote sustained, inclusive and equitable growth. Today’s challenges to economic and social development are of a magnitude and complexity not imagined at the turn of the new millennium, calling for a rethinking of the developmental role of macro policy paradigm that focuses not just on growth but also equality and rights, social development and environmental protection. The 2013 Survey tells greater emphasis has to be provided on the quality and composition of public expenditure. The development macro policies must provide much more resources in health, education, social security and environment. Also, financial inclusion reinforces rather than impairs stability , thereby stimulate output. This should also include SMEs, agriculture investment and small borrowers.
- But, as the Survey shows, innovative national policies can address these challenges, promoting inclusive growth in win-win solutions for all. By way of example, ESCAP analysis shows that the recent minimum wage adjustments in Thailand will increase job and GDP growth by 0.6% and 0.7%, respectively. Another example is China’s rebalancing of its economy towards a more pro-poor and domestic consumption-led pattern of growth. ESCAP estimates show this would also benefit other Asia-Pacific countries with their consume goods exports to China increasing by $13 billion during 2013-2015. Likewise, India’s eight-year-old national rural jobs guarantee law has not only helped reduce poverty but also strengthened the rural growth, economic resource base and social protection. Bangladesh Bank has facilitated banking services to millions of poor free of charges to enable direct cash transfer of agricultural input subsidies and social safety net payments.
- The main contribution of the 2013 Survey is to provide an answer to policymakers concerned about the public investment needed to implement a bold, new agenda for inclusive and sustainable development. In a first-time assessment, the Survey estimates the cost of providing an illustrative package of policies comprising six elements: a job guarantee programme, a universal pension scheme, disability benefits, increased public spending on health, universal school enrolment and universal access to modern energy. 10 Asia-Pacific countries: Bangladesh, China, Fiji, India, Indonesia, Malaysia, Philippines, Russian Federation, Thailand and Turkey are included to provide estimates to promote inclusive and sustainable development.
- While the public investment needs of such a package are not small, ESCAP analysis shows these are affordable for most countries. The total investment needs of the six policy package ranges between 5% to 8% of GDP by 2030. In the case of China, the cost of the package is projected to reach 3.3% of GDP in 2020 and 5.2% of GDP by 2030 The cost of the package is projected to exceed 10% of GDP by 2030 only in Fiji (13%) and Bangladesh (22%).
- The good news is, that while the public investment needs of such a package are not small, ESCAP analysis shows these are affordable investments in the future we want, for most countries of Asia and the Pacific. Because of the low tax revenue-to-GDP ratios in the region, measures such as broadening tax bases, making tax structures more progressive, improving the efficiency of tax administration, tighter regulations on capital flight and fighting corruption as well as reducing non-development expenditure could generate the requisite financing for most countries in the region. However, LDCs and small island developing States would have to supplement domestic resources through global partnership and development cooperation, including cooperation to stop the illicit transfer of funds. Moreover, ESCAP analysis shows that such investment would not jeopardize macroeconomic stability, making this a win-win policy approach for ALL.
- The good news is that most countries can finance this package without jeopardizing macroeconomic stability. A long-term ESCAP macroeconomic simulation exercise shows that governments can pursue these inclusive and sustainable development policies while maintaining fiscal sustainability and price stability. For example, public debt path taken by China also exhibits an increasing trend under the “small macro spillovers” scenario but in terms of level (about 50% of GDP by 2030), and future upward trend is also in line with the baseline case. The direct impact of additional public spending on output growth and indirect impacts on labour force participation, wage earnings and labour productivity would lead to sustainable future debt paths. At the same time, inflation would remain manageable under various simulation scenarios considered.
- Let me now briefly describe the key elements of the Forward-looking macroeconomic policies Rio+20+ 2010 Millennium Development Goals Summit recognized forward-looking macroeconomic policies should include: Safeguard the sustainability of public investment strategies in support of broad-based growth and the achievement of the MDGs. Not focus narrowly on debt stabilization and curbing inflation, but should ultimately be supportive of growth of real output and employment. Often necessary to relax unnecessarily stringent fiscal and monetary restrictions Use countercyclical fiscal and monetary policies to boost employment and incomes and to minimize the impact of external and other shocks on poverty. Strengthen mobilization of domestic resources and adopt mechanisms that promote countercyclical policy responses. Enhanced international cooperation to strengthen tax revenue collection and increase sovereign debt sustainability can greatly buttress the fiscal capacities of all Governments.
- To conclude, The central message of the 2013 Survey is the need for a paradigm shift in macroeconomic policymaking to focus on its developmental role which has been overshadowed by emphasis on debt and inflation control over the past three decades. Grow now, distribute and clean up later is dead end! The new development paradigm has to be a transformative agenda that is people-centered. The new development agenda must provide simultaneous emphasis on investing in social and environmental pillars that fortifies economic pillar. The Survey shows that this will have the significant impact leading to sustained, inclusive and equitable economic growth. In the light of the region’s high degree of economic insecurity, large development and infrastructure gaps, and heightened environmental fragility, along with extreme exposure to climate change-related risks, it is necessary to better balance the stabilization and developmental roles of macroeconomic policies. Macroeconomic policies could and should be more forward-looking to help bring about the region’s next great transition to inclusive, resilient, equitable and sustainable development. The world leaders have already committed to forward-looking macroeconomics in both the 2010 MDG Summit and the 2012 Rio+20 Conference. The 2013 ESCAP Survey shows how to do this.
- You can download the Economic and Social Survey of Asia and the Pacific 2013 on www.unescap.org/Survey2013/ I Thank You!